Kenya through the Third Medium Term Plan(2018-2022) plans on enhancing its position as an Islamic Finance Hub by putting in place an Islamic Regulatory Framework.
Islamic Finance mainly involves sharing of risk, prohibition of Interest, prohibition of speculative transactions and emphasis on money as a medium of exchange thereby nullifying the idea of time value of money.
The composition of Islamic Finance Institutions according to 2019 data include: Islamic banking(72.4%), Sukuk(22.3%), Islamic funds(4.2%) and Takaful(1.1%)
According to the Islamic Financial Services Board (IFSB), Sukuk is a certificate that each represents a holder’s proportionate ownership in an undivided part of an underlying asset where the holder assumes all rights and obligations to such an asset.
A Sukuk is a shariah compliant bond-like instrument. Both Sukuk and Bonds provide investors with a payment stream, however income derived from a sukuk cannot be speculative.
Sukuk involves a direct asset ownership interest while bonds are indirect interest-bearing debt obligation. Trading in Sukuk involves sale of assets while bonds dont involve any sale of assets.
Criteria for Issuance of Corporate Sukuk in Kenya includes:
- Should be registered as corporate, have the partnerships(LLPs)
- Minimum issued and paid up share capital of Ksh 50 Million
- Net Assets of Ksh 100 Million before listing
- Audited Financial statements compliant IFRS/IAS
- At least a third of the directors should be independent
- Historical track record of at least Ksh 50 million
- Total debt to asset ratio of less than 400%
- Total funds from operation to total debt ratio greater than 40%
- Where the Issuer does not meet the criteria, they must involve a guarantor
Global Sukuk Issuance has shown an increase of around 18.32% to $145.70 Billion in 2019 from $123.15 Billion in 2018. Sukuk Issuance with a maturity of more than 18 months from the Gulf Cooperation council region, Malaysia, Indonesia, Turkey and Pakistan reached $12 Billion in 2020, a 42% increase on the previous 3 months.
Islamic Finance in Kenya is composed of
- 3 fully fledged banks(Gulf African Bank, First Community Bank and Dubai Investment Bank
- 4 conventional Banks with Islamic windows(NBK, Absa, KCB, Standard Chartered)
- 2 Shariah Compliant Cooperatives (Taqwa Sacco, Crescent Takaful Sacco )
- 3 Islamic Pension Funds(Takaful Umbrella Fund, Salih Retirement Fund and Lapfund Amal
- 1 Takaful Company( Takaful Insurance Africa)
- Islamic Collective Investment Schemes (GenCap Iman fund and Apollo Asset Management Shariah-compliant fund)
- Investment Banks ( FCB Capital)
The Overall Market size is over KSh 3.6 Million in assets under management according to the Capital Markets Authority and the amount is expected to keep growing.
Related:
Islamic Finance Podcast: Introduction to Islamic Finance
